In September, the Danish regulation agency Bruun & Hjejle’s report (“B&H Report”) launched its inner investigation report into alleged cash laundering carried out by way of the Estonian department of Danske Bank (“Danske”). The enormity of the scandal outlined in the report can’t be understated: from 2007 via 2015, no less than 200 billion Euros have been laundered by way of Danske. The discharge of the B&H Report has triggered the predictable cascade of resignations, investigations, hearings, recriminations and inventory plunges which have begun enjoying out over the previous eight weeks. These occasions, in flip, are starting to light up the 2 principal sides of the scandal: the institutional failures at a big, refined, worldwide financial institution that allegedly allowed wrongdoing on this scale to go unchecked for eight years; and the efforts nations like Russia will make – and people and entities they’ll exploit – to illegally channel substantial wealth to the West.

As we beforehand blogged, the B&H Report discovered that Danske processed 200 billion Euros in suspicious transactions made by hundreds of non-resident clients, principally from Russia and former Soviet states. Based on the B&H Report, the success of the laundering was because of the near-total failure of the Estonian Danske department to implement enough anti-money laundering (“AML”) procedures and the mum or dad Danske Bank Group’s failure to acknowledge and act upon quite a few purple flags that ought to have alerted it to the Estonian department’s points. Nevertheless, whereas discovering that the Estonian department violated quite a few authorized obligations in failing to have and implement satisfactory AML processes and procedures, the B&H Report stopped in need of accusing Danske’s Board of Administrators, Chairman, Audit Committee, Chief Government Officer or any government of violating their authorized obligations in regard to those failures.

Current testimony by former Danske worker turned whistleblower painted a much less forgiving image.

The Whistleblower’s Testimony and the NDA

The genesis of the scandal was a whistleblower report made to senior Danske administration in Estonia in 2014 outlining considerations over suspicious transactions. That whistleblower was later revealed to be Howard Wilkinson, a Briton who was head of Danske’s market buying and selling unit in the Baltics from 2007 to 2014. Following the issuance of the B&H Report, each the Danish Parliament and the European Parliament’s Particular Committee on Monetary Crimes, Tax Evasion and Tax Avoidance referred to as hearings. Wilkinson testified earlier than each on November 19 and 21, 2018, respectively. Wilkinson’s PowerPoint presentation for his testimony earlier than the European Parliament is right here.

Wilkinson’s testimony to each Homes addressed the worldwide scope of the scandal and Danske’s institutional failures to stop or handle it. Nevertheless, his testimony was restricted as a result of European regulation, in contrast to American regulation, lacks some crucial whistleblower protections. In contrast to beneath American regulation, whistleblowers in Europe usually lack particular authorized standing shielding them from retaliation by their employer. Nor are whistleblowers offered vital monetary incentives to return ahead. The end result, in line with Wilkinson’s lawyer, Stephen Kohn, a associate at the USA agency Kohn, Kohn and Colapinto, is a system that turns whistleblowers like Wilkinson from “informants into martyrs.”

In obvious distinction, the U.S. Securities and Trade Fee has discovered that an worker confidentiality settlement which prohibits an worker from disclosing info relating to potential company misconduct to the federal government violates SEC Rule 21F-17, which states that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

In Wilkinson’s case, this function or deficiency (relying in your perspective) of European regulation implicated a non-disclosure settlement (“NDA”) signed by Wilkinson. In accordance with Wilkinson, the NDA itself resulted from his preliminary grievance to senior administration. Wilkinson testified that in January 2014, he made the primary of 4 complaints to senior Danske administration regarding suspicious account exercise in the Estonia department however, by April 2014 it turned clear that “the bank didn’t intend to do anything.” On April eight, 2014, Wilkinson knowledgeable his superiors that “if they didn’t do a proper investigation and make the appropriate report to the police, then I was going to do it myself.” Twenty days later, Danske introduced Wilkinson with the NDA.

He testified: “[The NDA] was prepared by a senior lawyer in Denmark. A gentleman flew from Denmark to present the agreement to me and to negotiate it. He was very senior, and his boss was even more senior, and he told me that his boss had personally approved it.” He continued, “The purpose of the NDA was to obstruct any proper investigation of what was going on” by stopping him from offering info to Danish, Estonian, European or American authorizes with no waiver from the financial institution. Whereas Danske granted a waiver for Wilkinson to testify to the Danish and European Parliaments (and, later, to america Division of Justice), he claims the waiver got here with threats hooked up that if he named employees or recognized shell corporations in the U.Okay. used to maneuver cash or different associated entities or individuals, he can be chargeable for legal prosecution beneath Danish financial institution secrecy and European knowledge safety legal guidelines.

However this dynamic, Wilkinson shed some mild on the scheme and its contours.

The Money Laundering Allegations

In line with Wilkinson, Danske shoppers in Russia and the previous Soviet Union channeled funds by means of 4 Russian banks and into Danske’s Estonia department. From there the funds have been transferred to 3 totally different correspondent banks, which cleansed the funds reinserting them into the worldwide monetary system.

The scheme allegedly labored as follows: Danske non-citizen shoppers included British restricted partnerships (“LPs”) and restricted legal responsibility partnerships (“LLPs”) that, as can be later found, had ties to Russian authorities, together with Vladimir Putin. These buildings have come beneath growing scrutiny by British officers on account of their constant use in large-scale cash laundering operations. British LPs and LLPs may be set-up primarily anonymously as their registration requires solely the identification of its authorized proprietor, not their useful proprietor. Thus, anybody in the world can arrange a shell firm in England because the authorized proprietor of an LP or LLPs and anonymously channel funds from any supply via it. They did so to Danske’s Estonia department. In January 2014, Wilkinson found that the British LP and LLP Danske shoppers “were all fake. Not just that, they all basically looked the same. And it turned out they all had the same registered office in a suburb in North London.” In fact, the difficulty of useful possession has been a main focus of worldwide AML enforcement for years.

He then defined that funds have been routed from the Danske Estonian department by way of three principal monetary establishments “large US bank 1,” “large US bank 2,” and america subsidiary of a serious European financial institution (“European Bank 1”). Every of the three banks had correspondent relationships with the Estonian Danske department permitting them to switch funds for Danske shoppers. Probably importantly for their very own legal responsibility functions, underneath this association, the correspondent financial institution’s shopper is Danske, not Danske’s shoppers.

“Large US bank 1” ended its correspondent relationship with Danske in 2013 over considerations concerning the non-resident Danske shoppers. Giant US financial institution 2 was a Danske correspondent financial institution from 2013 till it ended that relationship in 2015. Nevertheless, based on Wilkinson, the overwhelming majority of the laundered funds at concern – roughly $150 billion – flowed by way of European Bank 1, which was a Danske correspondent financial institution till 2015. The place these funds wound up is anybody’s guess. Wilkinson testified: “No one really knows where this money went. All we know is that the last people to see it was these three large banks in the U.S. They were the last check, and when that failed, the money was into the global financial system.” In accordance with Wilkinson and his lawyer, nevertheless, Danske’s involvement is merely “the tip of the iceberg.”

The Case Proceeds

Investigators are continuing apace in the Danske cash laundering scandal. On November 28, 2018, Danske introduced that it has acquired preliminary costs from Danish prosecutors for its position in the scandal. Danske faces 4 costs, every for violation of the Danish Anti-Money Laundering Act: Rely 1 – failure to have satisfactory anti-money laundering controls; Rely 2 – failure to correctly monitor and course of non-resident clients; Rely three – missing adequate information of its non-resident clients; and Rely four – failure to carry out enough investigations into the enterprise and transactions of its non-resident clients. European and American businesses are persevering with their investigations, which can embrace further questioning of Wilkinson (because of Danske’s restricted waiver of his NDA). The state of affairs is so probably critical that the Danish central financial institution issued a report on November 30 warning that the cash laundering issues at Danske Bank might threaten the monetary stability of all the nation.